Macro - Chapter 14: Aggregate Demand & Aggregate Supply

How did the entry of women and baby boomers into the U.S. labor force during the 1960s affect the nation's short-run aggregate supply (SRAS) curve and long-run aggregate supply (LRAS) curve?

The SRAS curve and LRAS curve both shifted to the right.

Assume an economy moves from E1 to e2 to E3. Which of the following statements accurately describes the situation shown?

The economy begins and ends in both short-run and long-run equilibrium.

Contrast the sticky wage theory with the sticky price (menu cost) theory in a situation where the overall price level increases.

Under the sticky wage theory, producers expand production and sales because of higher profit margins, whereas under the sticky price theory, producers find their sales increasing because their prices are relatively lower

The long-run aggregate supply curve ______.

is perfectly vertical at the natural rate of output in an economy

The 2007-2008 recession in the United States appears to have been the product of ______.

negative shocks to both supply and demand

The wealth effect, the interest rate effect, and the foreign trade effect are three complementary explanations for the ______ of the aggregate demand curve.

negative slope

Assume that movement from point A to point B represents a 25 percent change in the price level. What would be the corresponding short-run change in the price of inputs?

no change

This curve shows there is a(n) ______ relationship between the quantity of real GDP supplied and the overall price level.

positive

Which of the following can prolong the duration of a recessionary gap?

the downward stickiness of prices and wages

Keynes argued that ______ prevents the market solution from working rapidly enough to avert a(n) _______.

wage inflexibility; prolonged recession

What determines the ability of these factors to shift the short-run aggregate supply curve, to shift the long-run aggregate supply curve, or to shift both curves?

whether the effects are temporary or permanent

Which of the following accurately contrasts AD2 and AD3?

AD2 shows an increase in real GDP demanded; AD3 shows a decrease in real GDP demanded.

Assume that U.S. imports remain constant while U.S. exports change, ceteris paribus. Which of the following statements is correct?

An increase in U.S. exports shifts the aggregate demand curve rightward.

Assume that movement from point A to point B represents a 15 percent change in the price of goods and services. What would be the corresponding change in the price of inputs?

15 percent increase

Aggregate demand is calculated by which of the following equations?

C + I + G + (X - M)

Which sequence of events accurately captures the wealth effect of a change in the price level?

Price level changes, consumer spending changes, and quantity of real GDP demanded changes.

Which of the following is a difference between the Keynesian and classical models?

Price stickiness is considered in the Keynesian model but not in the classical model.

When the overall price level decreases, what is the effect on the economy?

Purchasers demand a higher quantity of final goods and services.

Which of the following statements accurately describes the economy with a recessionary gap?

RGDP1 is less than RGDPNR.

Which of the following statements accurately describes the economy with an inflationary gap?

SRAS intercepts AD3 at ESR.

A Keynesian short-run aggregate supply curve has a flatter portion and a steep portion. How does a decrease in aggregate demand affect the actual real GDP differently across these two portions?

There is a large decrease in the actual real GDP across the flatter portion and a small decrease in the actual real GDP across the steep portion.

A fall in incomes abroad can reduce U.S. net exports and cause a leftward shift in the U.S. aggregate demand curve. True/False

True

Changes in the stock of capital will alter the amount of goods and services the economy can produce True/False

True

Economists continue to debate the actual shape of the short-run aggregate supply curve. True/False

True

It is rare that actual and potential real GDP are equal. True/False

True

The misperception effect involves a false perception about relative prices. True/False

True

The short-run equilibrium level of real output and the price level are given by the intersection of the aggregate demand curve and the short-run aggregate supply curve. True/False

True

Which of the following is an example of a positive supply shock?

an unexpected price cut in imported oil

The largest single component of aggregate demand is ______.

consumption

The aggregate demand curve shifts rightward in response to ______.

increases in total purchases in the economy